Considering how easy it has become to start a company – and the legions of young entrepreneurs keen on doing so – I guess it shouldn’t surprise me that I get pitched so many identical ideas.

One perennial source is college entrepreneurs who, drawing from their limited personal experience, tend to pitch me ideas having to do with dating, course selection, tutoring, text book rental, and the other inconveniences of college life.

For obvious reasons I also get pitches from the hundreds of companies all aiming to be the “Netflix Of” something. I’ve seen (in no particular order) companies wanting to become the Netflix of Toys, Batteries, Books, Games, Anime, Sports, Clothes, Flowers, Cosmetics, Baby Clothes, Skis, Cell Phones and Neckware. And that’s just scratching the surface.

Other times there just seems to be a flavor of the month. Recently it’s been Airbnb and Getaround wannabe’s, all trying to bring peer-to-peer sharing to new categories like bikes, tools, sporting goods, and clothing.

The tragegy here is not that the ideas are derivative or not particularly creative, it’s that so many of these ideas have been tried before. And failed!

I call it chasing a mirage.

When you are chasing a mirage, your brilliant idea shimmers with promise when seen from a distance. It’s only after you’ve expended valuable time and money crossing the desert that you ultimately discover that there was never really anything there.

But the real tragedy isn’t the loss of time and money, it’s that the inevitable failure was tragically knowable in advance if only you had taken the time to research those previous efforts and think analytically about why previous efforts to do this very same thing had met with failure in the past.

I still can’t quite figure out why so many people are willing to plunge lemming-like over a cliff that someone else has already jumped off. It’s seems to be an equal mix of ignorance (“I had no idea anyone had ever tried this before”) and hubris (“I’m better than those other jokers”).

Whatever the case, it’s gotten so that whenever I find yet another entrepreneur gearing up to strike out across the desert toward their personal mirage, I ask them, “why you?”

In this case, asking “why you” is not a knock on them personally. It’s not questioning their abilities as an entrepreneur, nor their perseverance. (In fact, overflowing self confidence is an important weapon against the endless chorus of people telling you you’re idea won’t work, or that you can’t pull it off).

No, “why you” means “why are you going to be successful with this idea when others have not”? if you don’t understand exactly why the pioneers who went before you failed, than you risk repeating the exact same experiment with exactly the same results. It’s one thing to have confidence. But it’s hubris to think that you are so much smarter and harder working than the others. The key is what you do, not how hard you do it.

If you think you’ve found a blank space on the map, a little warning bell should go off. Why has no one done this? Why is no one doing this now? If you can figure out what went wrong with other tries, you’re in an infinitely better place to get it right with yours. And if you truly have found an idea that has never been tried before, the proper emotion should probably be fear rather than excitement.

As Santayana famously wrote, “those who do not remember the past are condemned to repeat it”. But I think there’s a simpler way to think about it: If you’ve come up with a seemingly novel idea that seems to good to have not been tried before – well it probably has.

Or, as any poker player will tell you, If you can’t tell who the sucker is at the table, It’s you.

Sometimes, despite our best effort, things just don’t work out. Or to put it a different way, shit happens.

Since the first of the year, two of the companies I’ve been involved with have decided to wrap things up. In both cases, these two young CEOs had developed strong ideas, tirelessly pitched their concepts, raised significant amounts of money, recruited first-class teams, launched, pivoted two or three times, only to ultimately find out that their carefully nurtured idea was not such a great idea after all.

But what I found most impressive, was that both of these CEOs managed to come to this decision while they still had ample amounts of money in the bank, and therefore had time to wind down their companies gracefully, while there was still time to create a reasonable outcome for their employees, their investors and their customers.

It made me realize that while we all seem to chatter endlessly about what it takes to build a company, we almost never talk about what’s involved in taking one down.

Part of that is because entrepreneurs are relentlessly optimistic – a necessary trait for overcoming the years of adversity and naysaying that accompanies getting a startup off the ground – so it certainly cuts against the grain for any of us to say “enough”.

Perhaps like a test pilot, we’re hesitant to acknowledge failure or even the slightest lack of confidence in our abilities, perhaps scared that others will think that we are somehow lesser as entrepreneurs.

And maybe we’ve been overly influenced by survivor bias, since we mostly hear about the one company that completed their hail-Mary catch, rather than the 10 companies that choose to drive full speed ahead until the very moment they ran out of gas.

Despite my desire to back CEOs who are going to be bulldogs about pursuing every last lead and chasing down every last pivot, I also have to respect a leader who not only has the smarts to recognize when he is going down a dead end road, but also the discipline to be just as aggressive about engineering a safe landing for all of his stakeholders.

There’s more than just reputation at stake when you leave yourself options. You get to . . .

Sell a living company – In many ways a start up is like a shark, if it’s not moving forward, it dies. So while your company may not be growing fast enough to remain viable as a stand alone, starting your wind-down early lets you keep the doors open while you consider your other options. It allows you to keep your existing customers happy, allows you to keep your current team together, and allows you to show potential acquirers a more accurate picture of exactly what they are getting.

Sell your technology, not just your team – In the late ‘90s two of the smartest guys I know built an incredible tool that did auction pricing arbitrage. When they failed to get follow-on funding and closed up shop, the team landed on their feet. But the technology? Last I heard it was on a hard drive in the founder’s attic. There’s no question that technology acquisitions usually require longer and more extensive due-diligence than pure talent acquisitions, so leaving yourself time for suitors to adequately appraise you, makes it more likely that the fruits of all your efforts will eventually see the light of day.

Be more aggressive about your price. Nothing undermines your negotiating power like desperation. Having money in the bank allows you to say no, which dramatically strengthens your hand.

Look after your own reputation. Sure, nothing will cement your reputation in the valley like success. But it’s still possible to get points for the manner in which you’ve managed all those alternate scenarios.

Maybe you didn’t generate the 10X return your investors were hoping for, but fighting to at least return their original investment is still a materially better outcome than a complete wash out.

Maybe you didn’t get your employees the payday that sets them up for life, but at least you landed them in a promising new opportunity as well as getting them “a little something extra” that made their last 18 months of hard work well worth it.

And for you, while you may not have ended up as “the next Zuck” like you always dreamed you would, you’ll still did the very best you could under the circumstances. Your employees will know it. Your investors will know it. And most important of all, you’ll know it.

]]>https://hahtz.wordpress.com/2012/02/21/failing-gracefully/feed/2mbrandolphUSairWant to Learn to be a Leader? Just Be One.https://hahtz.wordpress.com/2012/02/13/you-cant-teach-leadership-but-you-can-learn-it/
https://hahtz.wordpress.com/2012/02/13/you-cant-teach-leadership-but-you-can-learn-it/#commentsMon, 13 Feb 2012 10:00:26 +0000http://marcrandolph.com/?p=586Continue reading →]]>Every fall, I spend a week in Lander, Wyoming.

At one level, I go there for a board meeting. But at another level, I go there to give back. Because it was there in Wyoming that I learned almost everything I know about being an entrepreneur.

When I was in 14 years old, my parents packed me off to the National Outdoor Leadership School (NOLS) to take a thirty-day course in outdoor leadership in the Wind River Mountains of Wyoming. It changed my life.

On a personal level, NOLS instilled in me a deep love for mountains – as well as the skills in wilderness travel and mountaineering that I still use today.

But on a much deeper level, NOLS taught me to be a leader. Not by telling me how to do it, but by letting me practice being one.

For almost every one of the 30 days I spent in the mountains that first summer, our small groups would pack up for the hike to the next camp and each student would be given the chance to lead for the day. Each time my turn rolled around, it was all on me; I would decide what time to start out (when it’s cool and the snow is hard enough to walk on top of, or later, when the snow softens and it’s easier to kick steps). I would decide what route to take (the harder route over the pass, or the longer route following the creek). I would decide how many breaks to take, how long they should be, and where to take them. I would decide where to camp for the night.

The feedback loop was immediate. I quickly learned that which route I choose and how I managed the group’s time decided whether we made it to camp in time for a swim or staggered in exhausted after dark. I learned that my group’s willingness to follow was less dependent on the actual choices I made at each juncture and much more dependent on my ability to solicit input, make a decision, and communicate it with conviction and clarity.

I learned to be comfortable with ambiguity. To be comfortable with difficulty. To work as a team.

Looking back, its hard to think of many other places where a 14 year old kid could have gotten the opportunity to make real decisions with real consequences and get such immediate feedback on how well they did it.

That course was just the first of many. Week after week and course after course, starting with short hikes and moving up to multi-day expeditions, first as a student and then eventually as an instructor, I made thousands of decisions; some trivial and some truly life and death.

Through those years, I learned, practiced, and slowly-but-steadily internalized what it meant to be a leader. Not by being told about it, but by being given the chance to actually do it.

And that’s the important take away here. The only way to learn it is to do it.

I think I’m a reasonably good entrepreneur and a decent leader, but I didn’t learn these things by reading a book, taking a class, joining an incubator, or anything like that. I learned it by doing it. By trying things and finding out whether they worked. By making decisions and seeing how they came out.

So by the time of my first startup — where I had to be a leader, be comfortable with ambiguity, make decisions, and clearly communicate those decisions to others, I already had thousands of hours of experience doing exactly that.

Some people think that leaders are born, not made. That’s bullshit. Leadership CAN be learned, but not by taking a course or reading a book.

Want to learn to be a leader? Get out there and find a place where you can actually be one.

———–

Note: I’m currently on the NOLS board of trustees. For those of you interested, the non-profit National Outdoor Leadership School still teaches thousands of students a year the fundamentals of outdoor leadership, environmental ethics, and wilderness travel – all in spectacular outdoor classrooms in 13 countries on 5 continents. Join us at: www.nols.edu

Mitt Romney’s remark that he “likes to fire people” will certainly end up being one of the best-remembered gaffe’s of a gotcha-laden primary season. Although the remark was taken out of context it certainly reinforced the perception that CEOs are hard-nosed bastards more attuned to profits than to people.

Well I don’t want to speak for any other CEO, but I hate firing people.

In fact, of the hundreds of responsibilities that fell to me in my six startups, letting someone go was always the most difficult thing I ever had to do. Unfortunately, I’ve had way more experience than I ever would have wished for. Including having been fired a couple of times myself.

Just to be clear, I’m not talking about firing someone for cause. It’s reasonably straightforward to fire someone for egregious misbehavior or obvious ineptitude, but if you’ve defined your position clearly, interviewed well, and been reasonably diligent at checking references, a complete whiff should be the exception rather than the rule.

I’m also not talking about “reductions in force”, those bulk layoffs that larger companies use to shore up the numbers behind a bad quarter. Or more commonly, what they fall back on once they’ve lost their edge and are trying to check their long slow slide to irrelevance.

No, the hard part is when you have to fire decent people for reasons that frequently have nothing at all to do with them, except perhaps being in the wrong place at the wrong time.

There are a few common reasons to find yourself in these nasty situations:

The Pivot – It’s unusual for young companies to get a hit with their very first swing, so unless each successive business model calls for the same expertise, an employee who was indispensible in December may be suddenly irrelevant in January. Just last week I spent hours on the phone with one CEO whose company was pivoting from consumer focus to a B2B approach; all of a sudden two of his key employees with domain expertise in consumer marketing and content were no longer as critical.

The Upgrade – As a new company with a big idea but not much else, you hire the best you can. But things go well, you get some traction, and before you know it you’ve got a big chunk of Series B money in the bank and you’re ready for the big leagues. Even more exciting, you’re finding that all that TechCrunch buzz has given you the ability to attract the corresponding big league talent. And It suddenly becomes clear that the 20-something guy you persuaded to be your VP of marketing when you were 6 employees and working out of your spare bedroom, may not be the right guy to run marketing now that you are 100 employees and dealing with a real marketing budget.

The Pruning – We all talk about how we only want to have A players, but most people don’t have the stones to do what it takes to actually make that happen. The hard truth is that having a work force that is materially above average, is less a matter of hiring well than it is a matter of being prepared to deal with your mistakes. If you’ve ended up with a C player, than the only way to address that problem is to move out the C so that you can take another pass a trying to land an A.

Firing someone in any of these circumstances is brutal regardless of your position, but for the start-up CEO it can be even more excruciating, because in many cases you are firing someone you spent months convincing to give it all up and set sail with you. Stand with you. Take a risk. And someone who worked tirelessly to help make your dream happen.

That’s when you know you’re really a CEO. When you have to take aside a friend and explain that their skills, however formidable, are just no longer up to the requirements of the position. Or that you’re bringing in someone from the outside to be their boss. Or that you simply can no longer afford to keep them around.

As decent human beings we always want to do what’s best for each and every one of our employees, and when someone’s not working out, it’s always tempting to “find a spot for them” so that we can keep everyone on board in perpetuity.

But we have a deeper responsibility, which is to consider what’s best for the many other stakeholders in this venture – many of whom took equivalent leaps of faith with their time, talent or money – and are expecting you to do everything in your power to bring them home safely, regardless of how unpleasant it may sometimes be.

It’s never easy to say goodbye to someone, but that doesn’t mean it’s not often the necessary and right thing to do. It’s at times like this that an honest appraisal of the situation and a generous severance will be the best thing for everyone involved. You included.

Although I stopped being a full-time entrepreneur years ago, I still have plenty of great ideas for new businesses. I just no longer have the appetite to start one.

Starting a company requires a marriage-like commitment – for better or worse, richer or poorer, sickness and health – a commitment that over the course of my career I’ve made to six startups. That’s enough.

That said, I still can’t stop thinking like an entrepreneur. I still see every problem as a hole that needs to be filled. And while the urge to “get in the game” is no longer the sharp ache that it used to be, it hasn’t gone away entirely either. It’s now more like the habitual temptation of an old addiction, the way that smokers still yearn for a cigarette even years after quitting.

So a few years ago I became a mentor and an angel investor, and it’s turned out to be the best of both worlds; I get the challenge and excitement of helping to start a company, but without requiring the 60-70 hour weeks that doing it myself would entail.

It turns out to be a good deal for the entrepreneurs as well, as they get two of the things that are most valuable to them at this point: My money and my advice.

It’s a good program, but to make it all work, I’ve made myself a rule which I’ve stuck to religiously – If I find a company I like, I’ll give them my money or my time – but never both.

Since many people find this a curious rule, I thought it might be worth a few minutes to point out why there are a number of good reasons for keeping my time and my money in different buckets:

I have limited amounts of both. Simple math says that were I to give both money and time to a single company, I by definition decrease the number of companies I can involve myself with.

There’s little upside to doing both. Between my money and my time, by far the more precious of the two is the time. For the companies I mentor, I’m almost always the single biggest outside time investor. This is clearly a big bet for me and I take it very seriously. For that, I receive a significant equity position so I’m already in a position to do well if the company does well. Since for most startups the two most likely scenarios are runaway success or abject failure – with little in between – adding investor equity to my mentor’s share does not meaningfully alter the economics for me. In the event that the company does spectacularly well, having angel stock in addition to my mentor’s grant won’t materially change my return. And if the company craters, well than I’ve thrown good money after bad.

I’m economically aligned with the founders. Or not. As a mentor, I receive common stock, meaning that I’m economically aligned with the rest of the team. If they do well, I do well. As an angel investor I receive preferred stock, which aligns me with the other investors. Again . . . if they do well, I do well. Mixing the two could muddy my motivations – and the perception of my impartiality – at least in those situations where the interests of common and preferred investors diverge.

It makes priorities clear. Most entrepreneurs want both money and time. But by forcing them to make a clear choice between the two, I find out which they value most. Especially if they chose time, it tends to ensure that they are going to take our ongoing relationship – and my time — seriously.

That said, I have heard a few criticisms of my approach that probably contain some shreds of validity. (Just shreds, mind you).

That by not investing . . . it demonstrates a lack of enthusiasm for the company. Well, Maybe it looks that way, but since that critique is usually directed at the companies I’m mentoring and not investing in, I can only say that my time investment is a much stronger endorsement of a company than a financial commitment would be.

That by not advising . . .I’m missing an opportunity to increase the likelihood of my own investment paying off. This one is probably true as well, but it’s the unavoidable consequence of being a zealous guardian of my time. In any case, my investments are not significant enough that my efforts would materially affect my return. I do know one investor, however, that takes the opposite approach. He now aims for investments of at least $200,000 a pop, saying that anything less puts insufficient “skin in the game” to warrant him allocating his (considerable) expertise and invaluable time.

Despite all this talk about optimizing returns and the value of my time, I think the real reason for my Chinese wall is a much more personal one; I just like the effect it has on the relationship I develop with my founders. As I’ve written before, mentoring has turned out to be a deeply personal and gratifying experience for me; easily the highlight of my post Netflix career. The emotional return on investment I get from these relationships transcends any possible financial reward. I guess I would just hate to sully it all with money.

One of my CEOs recently wrote that although he initially wanted me to invest, he now realizes that “I would probably be less candid about my doubts and feelings with you if you had given us money”.

I loved hearing that. I don’t doubt that’s its true. And I wouldn’t risk squandering that trust for a million dollars.

Netflix CEO Reed Hastings announced last week that the company would be splitting off their DVD rental service into a new business to be called Qwikster. Last time I checked their blog post on the subject, there were 27,183 comments. Approximately 27,181 of them were negative.

Wall Street didn’t approve of the move either, and the stock is now trading at less than half the price it was two months ago.

Even my own friends are sending me puzzled notes, wondering if the “wheels are coming off the cart”.

What can I say? They are all wrong.

Not only am I completely in support of what Netflix is doing, but I think it is one of the smartest, most disciplined and bravest moves I’ve ever seen.

Just to be clear, I haven’t worked for Netflix for years. So I have no inside knowledge of what specifically led to this particular decision, I haven’t talked to anyone there about it. Everything I know about it I picked up from the same sources you did.

Nonetheless, I understand what they did and why they did it as completely and thoroughly as if I had been sitting around the conference table myself.

Plain and simple, this move was all about focus. Relentless focus. A focus that has been deeply embedded in the Netflix DNA since day one

Here’s an example of what I mean.

When Reed and I launched Netflix in 1998, it was a very different company from the one you know today. The Queue, Unlimited Rentals, and the No-Due-Dates-No-Late-Fees model were still more than a year away. Our rentals were standard a-la-carte rentals. They had due dates. We charged late fees.

Oh . . . we also sold DVDs.

In fact, much to our great concern we sold a lot of DVDs. Bucket loads. So many, that by the end of our first summer, I would guess that 95% of our revenues were coming from the sales of DVDs. Although this did pay some bills, it was obvious to us that this was not a sustainable business. It was inevitable that at some point in the near future we would have Amazon entering the DVD business. And then Walmart. And then just about every mass market retailer in the country. All of which would have crushed our margins and slowly but surely driven us out of business.

Not only that, but even while the going was good, it was hard not to let the tail wag the dog. Despite knowing that the true future of the company was rental, it was hard not to spend time focusing on the area of the business where most of the money was coming from.

Most importantly, by trying to run a business that did two things well, we inevitably were forced to make an endless series of compromises that resulted in us doing neither of them well. Our landing page and sign up flow had to accommodate two different paths. Our checkout process needed to handle two types of transactions. Our shipping process had to accommodate two different types of products (one that had to come back and one that didn’t). Our content system had to accommodate titles we could only rent, ones we could only sell, and ones where we could do both.

In hindsight, it seems like such an obvious decision to stop selling and focus on renting. But wow – for a young CEO like myself — turning away from the source of 95% of our revenue was just about the hardest thing I had ever done.

Needless to say, it worked. Not only did walking away from 95% of our revenue have a way of focusing the mind on the remainder of our business, but the benefits began showing up everywhere – even in places we never suspected.

By freeing our designers from having to create a sign-up flow that accommodated two types of business, we were able to cut out steps, clarify instructions and simplify the process. Conversion went up.

By spotlighting a narrower benefit, we were able to clarify our positioning, resulting in more effective external marketing. Our acquisition costs went down.

By focusing on a narrower set of problems, it made engineering much more productive. It made QA testing simpler. It made metrics more intuitive. And it paved the way for us to implement a process of rapid iteration and testing that ultimately uncovered the big innovations that ultimately led to the Queue, Unlimited Rentals, and No-Due-Dates-No-Late-Fees.

The success emboldened us and we gained confidence in this approach, each time finding that narrowing our focus expanded our opportunities. I could probably come up with 150 examples, with each new success giving us renewed confidence in the benefits of folding partially successful hands in order to double down on more promising ones.

At every product meeting, in addition to figuring out what to do, we made sure to devote time toward deciding what not to do. We referred to it as “scraping the barnacles”, and, like boat owners, found that if we had the discipline to regularly remove all the small things that inevitably accreted to our hull over time, it would have a noticeable effect on how fast we could move through the water.

I suppose it’s only fair to mention at this point, that not everyone liked our decisions to get rid of these “barnacles”. For example, since early on nearly 3/4s of our customers were buying DVDs from us, it probably is safe to say that they were none-to happy that we stopped selling them. Ditto for the customers who loved renting a-la-carte only to see us drop it and focus on the all-you-can-eat program. While I’m at it, I’ll throw in an apology to the tens of thousands of other early Netflix customers who were part of price programs, feature tests, and other business experiments that we ultimately decided to discontinue. I’m truly sorry about all of it. But hard as each decision was in the short-term, I never questioned whether it was the right thing to do for the long-term success of the company.

So even though I haven’t been at Netflix in a long time, I can easily imagine the growing frustration they must have felt these last few years as they made decisions they knew were suboptimal for the streaming business in order to maintain compatibility with the DVD business. How to work out pricing that covers multiple use cases. How to come up with messaging that embraces two different ways to receive movies. How to manage the significant differences in the content available between the two services. How to simplify the landing page and sign up flow.

Well no longer. Not having to worry about compatibility between the services makes it infinitely easier to optimize every decision around the real prize, which is clearly streaming. Pricing. Messaging. Content. Sign-up-flow. All better now.

Are customers upset? Undoubtedly. And I’ll be the 27,184th to say that the communications surrounding both the price increases and the Qwixter launch were ham-handed, tone-deaf, and have unquestionably damaged the brand. But should fear of either of these things have prevented Netflix from taking this step and ensuring that their streaming service has every possible advantage going forward? Absolutely not.

In his blog post, Reed apologized for not communicating well, not for having made the wrong decision. I agree with him on both counts.

But what is truly mindblowing, is that when I was CEO trying to screw up my nerve to walk away from selling DVDs, I risked alienating tens of thousands of customers. Reed is showing that he has courage and conviction to do the right thing despite having tens of millions of them.

This is why this guy is the best entrepreneur on the planet.

]]>https://hahtz.wordpress.com/2011/09/26/did-netflix-screw-up-i-dont-think-so/feed/174mbrandolphpopcorn2But don’t just take My advicehttps://hahtz.wordpress.com/2011/05/23/but-dont-just-take-my-advice/
https://hahtz.wordpress.com/2011/05/23/but-dont-just-take-my-advice/#commentsMon, 23 May 2011 11:30:53 +0000http://marcrandolph.com/?p=495Continue reading →]]>I hate being called an Advisor.

It may have meant something once, but now the term “Advisor” has become little more than Pitch-fodder. A checklist item in every start-up’s deck . . . thrown in for it’s implied endorsement value.

In fact, the role of Advisor has become so devalued that one start-up CEO who pitched me last week felt compelled to describe the group he had assembled as “working Advisors”. As opposed to the other kind, I assume.

That’s really a shame, because entrepreneurs can use all the advice they can get. Especially these days, when a potent cocktail of powerful software tools, easy access to seed capital, and a broad network of incubators have made it possible for an ambitious entrepreneur with a great idea to get her product up, running and funded in a matter of months.

I’m now seeing more great startups coming out in a month than I used to see in a year. But I’m also seeing a corresponding number of bright young entrepreneurs with that deer-in-the-headlights look, the result of having to be buck-stoppers for hundreds of decisions they never imagined facing and never were prepped for in start-up camp.

So then why am I knocking the concept of having an Advisor? Because most people don’t really need one. At least not at first.

What they do need is a “Mentor”. And despite some blurring of terminology in recent years, an “Advisor” and a “Mentor” are truly worlds apart. Let me expand on that a little.

The first few years after I left Netflix I was definitely an Advisor and, for me, it was a deeply unsatisfying experience. The basic model went something like this: I would meet with the team a couple of times, I would toss out some pithy and astute suggestions, they would invite me to join their Advisory board, and then — with very few exceptions — that would be the last I would hear from them.

Or, to be honest, think of them.

I never got to really know the team. I never really got to understand their market. And I certainly didn’t really understand the problem they were trying to solve. In the end, it was not really helpful to the company and it certainly wasn’t satisfying for me.

Unfortunately, I think this is the model for most Advisory boards these days. It’s just the collection of people who said yes.

For the last few years, however, I’ve spent the majority of my time as a Mentor and I’ve now come to believe that a single great Mentor can do more to help a company than a dozen Advisors.

So how is a Mentor so different than an Advisor? Simply put, as a mentor I’m willing to make a big investment in you and your company. But I’m not investing my money. I’m giving you something even more precious to me than that. I’m investing my time.

It’s a deep relationship. I get to know you. I know your team. I understand your category and your products. I try to know enough to help you work through the subtleties of a problem rather than just applying a formulaic solution. It’s lonely as a CEO, and it can be an incredibly valuable to have at least one other person who is close enough to the problem to understand it, smart enough to help solve it, and detached enough to be impartial.

The relationship is singular. As CEO, you may have many Advisors, but it would be very unusual for you to have more than a single Mentor. In exchange, I make a serious commitment to you and your company: both in the amount of time I spend with you each week as well as the length of time I’ll stay engaged.

I’ll be proactive and kick your ass whenever I see it needs kicking. (The Advisor will kick your ass too, but usually only when you ask him to).

And not insignificantly, as a Mentor I’m aligned with you – not your investors. If I do receive a stock grant, it’s common not preferred; it vests, accelerates and (ideally) pays out on the same terms as the founders. During fund raising, acquisition talks, or any of the other coming-of-age milestones of a young company, you’ll know for sure that I’m on your side of the table.

Bottom line: my job is to help you be a better CEO, not to watch out for my own interests.

So, despite my cynicism, is there still a role for an Advisor in your life? Certainly. But to know when and how to use one, you have to recognize that there are really two types of problems confronting an entrepreneur:

The one-shot “I need a specialist” kind of problem. Think of it as calling a plumber to fix a leak.

The long-term “wow this shit is tricky” kind of problem. Think of it as hiring an architect to help you build your dream home.

An Advisor is more like the plumber. Quick in. Quick out. Really knows his stuff and how to apply it.

The Mentor is more like the architect. Willing to invest the time and effort to know what you’re looking for and how to achieve it – even if you’re not quite sure about those things yourself.

It’s probably worth adding that the type of advice you need will greatly vary based on what stage you’re in. The experienced CEO in a more mature company probably has things strategically on an even keel. She’s more likely to want to surround herself with tactical resources (read: Advisors).

The new CEO has a different problem. He’s not trying to figure out how to put out the fire – he’s trying to figure out which of the one hundred fires he’s got burning are the important ones. He needs strategic counsel (read: Mentor).

And what about forming an Advisory Board? Well, as my father used to say, “If you’re going to ignore my advice and do it anyway, at least let me show you how to do it right”.

Remember the first Godfather movie? There’s a scene where the local undertaker beseeches Don Corleone to avenge a wrong done to his daughter. The Don agrees to help, but adds, “Some day, and that day may never come, I will call upon you to do a service for me. But until that day, consider this justice a gift on my daughter’s wedding day”.

That’s how an Advisory Board should work. Some day, and that day may never come, you’ll call upon your Advisors to do a service for you. But until then, just consider that small stock honorarium a gift. You don’t need to do regular calls. You don’t need to meet once a quarter. In fact, the less you demand of them, the easier it is for them to continue “working” with you. Communicate regularly to them as a group so they know what you’re up to and then wait for a particular problem that requires their expertise. They’ll be there for you when you need them.

So now you’ve got your Mentor and you’ve got your Advisors but don’t stop there. There are at least two other ways to bring in the expertise you’re looking for. By way of example, I wear four different hats for the companies I’m helping.

Advisor – OK, I admit it. I am an Advisor to two companies. (Despite my grumbling, I have agreed to be an Advisor in these two cases because I like the CEOs and when they do toss me problems, they are juicy interesting ones).

Investor – I treat my relationships with my portfolio companies as Advisor-Lite; ping me if you need something, we’ll do lunch once in a while, but for the most part you’re on your own. That said, most angel investors were entrepreneurs themselves and can be a great group to ping for hiring, introductions, vendor sourcing, referencing etc.

Mentor – I’m currently mentoring two companies and this is the sweet spot of my post-Netflix career. I’m currently spending three to four hours every week meeting with each team of founders, and I honestly can say I think about their problems as if they were my own. I would do this exclusively if I had the bandwidth.

Board Member – I’m currently a director for three companies, and in this role I fall somewhere between Advisor and Mentor. Although I do invest in getting to know the company’s management, category, products, and issues, my input tends to be more strategic than tactical, and more watching out for the stockholders than watching out for the CEO. Ultimately, as a board member, I’m my CEO’s boss – which can’t help but color the relationship between us.

Obviously, the line between theses categories is blurry. I can point to some Advisors who maintain a level of contact with their companies that go way beyond mentoring. And there are some mentors who have figured out how to add value with only sporadic as-needed contact. Add in all the various flavors of board members and investors and you’ve got an almost endless variety of counselors to choose from.

For my part, when I launched Netflix, I was nearly 40 years old, already had a handful of other startups under my belt, and was able to surround myself with a team of grizzled veterans.

Well, he was right. In fact, I’m happy to go on record as saying that the ability to create a “Reality Distortion Field” is right up there alongside optimism as an entrepreneur’s most valuable weapon.

It has certainly worked for me! It has helped me to convince superstar hires to leave comfortable positions, get huge multi-nationals into co-promotions with my tiny startup, and get A-list investors to bet their real-cash-money that my company might be the next big thing.

But even though my friend is right . . . He’s only half right. It is certainly important to be able to talk a good game, but you’ve got to have the goods too.

Fourteen years ago, when Netflix was only a few months old, I needed to choose a codename; something to use for our test site, our email, and our legal documents. As I was struggling to come up with something catchy, one of my mentors gave me two great pieces of advice.

“First”, he said, “pick a name that’s so bad, that you won’t even be tempted to use it when you run into difficulties finding your real domain name.

“Second, pick something meaningful. It’s a great way to start aligning everyone around what you think is really important.

So I called it Kibble. Kibble.com. Like the dog food.

Unlaunchable name? You betcha!

But ultimately I choose Kibble for a more important reason: it was to remind me (and everyone else at Netflix) never to forget that old Madison Avenue chestnut:

“No matter how good the advertising, it’s not a success if the dogs don’t eat the dog food”.

In other words, you have to have Product and Promotion. Steak and Sizzle. Substance and Spin.

It hasn’t always been like that in Silicon Valley. When I first arrived here in the late 1980s there was no question about the hierarchy. Engineers were king. Product uber alles.

At that time Silicon Valley was the closest thing this country has ever had to a true meritrocracy. If you were an engineer, it didn’t matter what you looked like, dressed like, or smelled like for that matter – the only thing that mattered was the quality of your code. And that was transparently visible to everyone. There was nothing to hide behind. You could be the most awkward dork in the room, but if your code was good, you were revered. Bullshit got you nowhere.

It got to the point that at Borland International, the software company where I worked in the early ‘90s, that the engineers were the ones who got the big offices with windows and balconies on the third floor. Us marketing and sales guys were in the airless cubicles below.

I was living “The revenge of the Nerds”.

But slowly and surely the pendulum began to swing back the other way. One year for instance, we got the great news that one of our products had won PC Magazine’s Technical Excellence Award. Flushed with excitement, we rushed to see who some of the previous years’ winners had been. As we read the list, you could feel the excitement draining out of the room. Who? What? Didn’t they go out of business two years ago? Oh my god! This award is the kiss of death!

As software began to be sold to people who would never consider themselves technical, it suddenly became clear that you needed people who spoke their language. It became fashionable to hire product managers from places like Proctor and Gamble. Or Clorox. And even the data-driven engineers had to admit that this marketing stuff might have something to it.

It drove them crazy. It was best when you had iron-clad test data demonstrating something purely ridiculous; like that software in the blue box sold twice as well as the exact same product in the red box. It made their head explode. On the one hand, they knew with absolute conviction that there was absolutely no reason why the color of the box should make the least bit of difference. But on the other hand, they also knew with absolute conviction that data didn’t lie. After puzzling over this paradox for a few hours they had no choice but to conclude that maybe us marketing people had some value. Or practiced a kind of black magic. Or both.

These days, the soft bigotry of anti-hucksterism can be seen every day on Hacker News. And there are still plenty of Hustler’s not quite getting how important their technical co-founder actually is to their success. The truth of the matter is that both sides need each other. We always have and we always will.

When it comes right down to it, being a world-class bullshitter doesn’t mean anything if all you ever spout is bullshit. Eventually you have to deliver. Pitching a concept well is certainly important, but ultimately you have to build it.

So be confident. Spin some dreams. But be prepared to back them up.

Back in the early days at Netflix, it wasn’t unheard of for me to tell prospective hires that I could see our stock going to a hundred dollars some day. I was telling this story to an interviewer a few years later when he asked me, “don’t you feel a little funny? bullshitting people like that?”

I had to think for a minute. Then I said, “It isn’t bullshit if you really believe it yourself”.

Sure sounds like fun doesn’t it? Starting and ending your day devouring the latest articles on Hacker News. Posting questions and answers on Quora. Working the party circuit at SXSW. Snarfing pizza with your fellow Y-combinator founders. Dashing off clever twitter exchanges with Dave McClure, Chris Dixon, Mark Suster and the rest of the Entreprenati.

Well I hate to be the one to break it to you, but ultimately, you have to actually build the company you’ve spent all that time pitching. That’s not quite as easy. Nor as sexy.

There’s a lot of talk these days about whether the start-up world is in the midst of a financial bubble, but not enough discussion about whether we’ve over-glorified what it really means to be an entrepreneur.

With TechCrunch breathlessly reporting every seed round raised, not to mention glowingly reporting on every Pitch contest, Hack-a-thon and Startup Bus, it’s easy to think that the entire process of being an entrepreneur is coming up with a clever idea and raising a little money.

The pitch deck starts to become the product being sold, with little thought to the reality of what might be involved in actually making the concept become the reality.

And now that “social proof” has becomes its own investment premise, it easy to be a “famous” entrepreneur based entirely on how confidently and quickly you were able to raise money.

But in fact, as any real founder knows, it’s only once that first round is in the bank, after your popped your TechCrunch cherry, and once you’ve moved out of your basement into a real office that the immensity of the task you’ve bitten off becomes real.

Your next round will have very little to do with how charismatic you are and how many twitter followers you have. Your seed investors may have been enamored by your vision, but your series A funders are going to be much more interested in more basic concepts. Like Traction. Customers. Revenues. Profitability.

As true entrepreneurs find out, building an enduring reputation comes from building an actual company. Which in many cases requires an entirely separate skill set from the skills required to launch one.

If you don’t have a true passion for your product, and the ability to bounce back from countless setbacks, it’s going to be a long hard slog. Ben Horowitz has a phenomenal blog post where he so accurately describes the loneliness of the entrepreneur, memorably saying that if you’re not comfortable having to frequently choose between “horrible and cataclysmic” you may not be cut out to be a CEO.

Perhaps not so eloquently, I once described our first years at Netflix to someone as “four years of pissing blood”.

The moment I first felt like a real entrepreneur was not the day I deposited my seed round checks. It was a day about nine months later, with subscriber numbers basically flat, when I looked down from our conference room window onto the parking lot and thought “Oh my god, I’m responsible for all those car payments”.

But don’t let me scare you. It’s still worth every minute of it. Just know what you’re getting in to. And be careful what you wish for.

This might be a little too abstract a reference, but there’s a wonderful moment at the end of The Candidate, where senator-elect McKay (played by Robert Redford), after having betrayed every one of his beliefs to finally win the election, pulls his campaign manager aside and ask “what do we do now?”

Like many politicians, McKay ultimately confused what it took to win office with the real responsibilities of governing.

For your part, don’t confuse the act of starting a company, with the real responsibilities of actually growing it.

I came to the sad realization today that I was never going to be a great angel investor. And for a simple reason: I like every idea I hear.

Obviously it’s not that my deal flow is so spectacular – the law of averages suggests that I should be getting an equal mix of hits and misses. In fact, since I’m not particularly well connected in the angel investing world (and am still trying to limit the time I spend doing it to a single day a week) I should be getting a considerably worse share of the best deals.

And no, I’m not incapable of saying “No”. I do that all the time. Ask my kids.

The simple reason I like every idea is that I’m an optimist. Not just a run of the mill optimist who sees the glass as half full; I’m an over-the-top optimist. The guy who insists on ordering a whole case of extra glasses to handle the overflow.

In my past life as an entrepreneur, this optimism was a critical tool. I just always believed we would succeed. Even when everyone else said my ideas were ridiculous. Even when we were almost out of money. Even when the metrics were all upside down. I always have confidence that I’ll figure something out. I just have that confidence that things are going to work out fine.

But that’s the problem. I also see that in every other entrepreneur’s idea. It’s even more pathetic because I have enough experience to clearly see the flaws in their reasoning and the gaps in their execution. But then I have that moment where I lean back on the chair, stair into space for second, and say “wait a minute — you know, there just might be a way here”. And pretty soon I’m up at the whiteboard sketching out a possible path to daylight and I’m just as excited as they are.

So far I’ve been incredibly lucky, and every investment that I’ve made has turned out to actually be pretty solid. No crater’s yet. And even a couple that look really promising.

Perhaps one could make the case that because of my operating experience I actually have a better idea than most what constitutes a “doable” idea. Or that my experience as an entrepreneur somehow helps me recognize a fellow optimist when I see one.

Either way, I’m not going to stop doing it. Too much fun. And what can I say? I just have that confidence that things are going to work out fine.

Now where did I leave my checkbook?

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